Meet the Winner of Our April 2016 Call to Action!

Paulana Lamonier

May 12, 2016

Making mistakes is human nature. But when they're of a financial variety, they can be a blow to both your ego and your budget.

That led us to pose our April Call to Action question: What’s the most embarrassing thing you realized you never knew about managing your finances? How did you uncover your naiveté, and how has it changed your financial picture today?

The responses we received were eye-opening—and pricey. From one person who used 401(k) savings to pay down credit card debt (only to fall back into old swipe-happy habits) to the reader who neglected to have a financial chat with her husband about their medical costs, the lessons that accompanied these mistakes were worth learning. Thanks to those who shared!

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And congratulations to this month's winner, who will receive $100 to help reach her financial goals: Lydia Chambers, an architect in San Francisco.

Tax time can be stressful for a lot of people, including for Lydia, who unearthed one of her biggest financial mistakes while filing her 2015 returns.

Here's her story.

"In 2014, I was looking for ways to increase my savings and pay down my credit card debt. A friend of mine, who is in a different field and income bracket from me, talked about how he'd played with his personal tax allowances to take home more money each paycheck rather than getting a big refund once a year.

I had never heard of this before, instead always claiming a 0 or 1 on my W-4; I enjoyed the decent-sized return I would get every spring. But the idea of taking home more money in the present was intriguing because I thought I could use it to boost my emergency fund and pay down some lingering credit card debt.

So I went to the IRS website and ran some calculations using their withholding calculator. The results I got suggested that I could take 2 allowances and still receive a few-hundred-dollar refund. So in August of 2014, I changed my W-4 to reflect that. Come tax season, I filed my paperwork and enjoyed getting a $500 return.

I didn't think much about my withholding status for the remainder of 2015. During that year, I received a 15% raise, but didn't even consider that my allowances might need to change as a result of the extra money coming in each pay period; to my mind, they were unrelated.

In January 2016, I started wondering how large of a return I might get for tax year 2015, and started thinking about what financial goals I could fuel with that money. I took the numbers from my last pay stub of 2015 and plugged them into an online tax preparer. To my horror, it estimated that I was going to owe the government more than $5,000!

I immediately got the rest of my pay stubs and looked closer at how much had been withheld, comparing the amount with the previous year. I saw it was less than half of what had been withheld during 2014.

I spent the next few months planning how I was going to pay that amount. When it came time to file, I was relieved to see the amount owed wasn't as bad as I initially thought, aided by my deductions, which were mostly from my student loan interest. Ultimately, I was able to reduce the amount of federal taxes I owed from roughly $4,000 to $2,600. My state taxes went from $1,300 to $1,100.

The biggest lesson I learned was that I need to thoroughly understand the impact of any decisions I make that would affect my taxes. Going forward, I plan to speak with someone before I move ahead with changes on my tax paperwork—including what will happen if I get married and have kids—so I won't get caught off-guard again."

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LearnVest Planning Services is a registered investment adviser and subsidiary of LearnVest, Inc. that provides financial plans for its clients. Information shown is for illustrative purposes only and is not intended as investment advice. Please consult a financial adviser for advice specific to your financial situation. LearnVest Planning Services and any third-parties listed, discussed, identified or otherwise appearing herein are separate and unaffiliated and are not responsible for each other’s products, services or policies. LearnVest, Inc. is wholly owned by NM Planning, LLC, a subsidiary of The Northwestern Mutual Life Insurance Company.